CEO Insights

4 Reasons Why the World's Biggest Companies Are Recruiting Outside CEOs

In 2016, Nestlé made a surprising move to hire a CEO from beyond their talented executive ranks. Not only did the Swiss snack company pivot away from an inside succession, they also opted for a leader from outside the entire consumer goods industry. Nestlé selected Ulf Mark Schneider for the job, banking on his prior success running a European healthcare company to help right the ship at a time when consumers are more conscious than ever of eating healthier foods. Schneider was also an ideal pick for cultivating Nestle's skin health and health science divisions, which present a substantial growth opportunity.

While Nestlé still has challenges to navigate, the move seems to be paying off. In 2018, the company saw revived growth and financial improvements after years of flagging sales.

The impact of great leadership is far reaching, from the C Suite to vendors and distributors half a world away. When a CEO has the power to make or break a business, it's logical to want to keep leadership in house. But there's a growing trend to recruit outside hires for top executive positions, and with good reason.

Selecting an external candidate for a CEO position was once a method of last resort, used primarily when a company was in turmoil. Not anymore. In fact, it's now a trend on the rise. A 2016 study from Strategy& showed that 22% of CEOs hired as part of a planned succession were selected from outside the company. Compared to hiring data from the early aughts, that number has nearly doubled.

The consequences of a bad CEO hire can be disastrous, from decreased revenue and disgruntled employees to decisions that can shutter an entire business. Here are 4 reasons why companies around the world are turning to outside hires for their company's top position:

1. A Fresh Look

An inside executive might know their company well, but that doesn't necessarily mean they'll have the best perspective for the position. Putting an outside hire at the helm can supply a much-needed breath of fresh air.

“The level of discontinuous change—when companies need to change their business model or do something they’ve never done before—is driving the desire to bring in outsiders,” explains PwC's Gary Neilson, who authored a study on outside CEO hires.

Companies with hardline promote-from-within philosophies can get hamstrung by insular thinking. Take General Motors—by filling their top position with inside hires, they lost perspective for how to stay ahead of more agile competition. Internal hires who have been with a company for years or moved up through the ranks can have a harder time breaking the status quo, even if that's exactly what a business needs most to succeed.

2. Unparalleled Experience

While there's some data supporting an experience trap when it comes to hiring CEOs with prior CEO experience, there's plenty of other types of experience an outside hire can bring to the table that an inside-track executive simply can't offer. Whether that's expertise in a tangential industry, like Schneider at Nestlé, experience in venture capital and private equity to aid revenue growth, or knowledge of competitive landscapes, the resume of an external candidate is worth a close look.

3. Better Performance

Bringing on an outside hire for the job can yield better results for a business. Outsider CEOs have been shown to deliver higher median shareholder returns than insider CEOs, especially when the successions were planned rather than a takeover during a period of company crisis.

While promoting someone internally may seem like an expedient solution or may provide a more seamless transition, Boyden's Howard Gross notes, "insiders may be underqualified or have peaked career-wise and may lack the necessary strategic vision and leadership skills required for a senior management position." These are important considerations to weigh when it's time to fill an upcoming vacancy.

4. An Inspiration Ripple Effect

It isn't just CEOs coming from an outside company who perform better—this spark can breathe new life into the energy and morale of the entire staff. In an interview for FierceCEO, WorkplaceUX CEO Thomas Bradbury explains, "Everyone suddenly realizes they need to step it up, and that frequently creates a great, new environment and the ambition to set—and achieve—lofty goals.”

While there may be an initial decline in efficiency, this is often only an adjustment period. Over time this gap closes, and employee performance at companies with outside hires in CEO positions actually surpasses that of businesses opting for an internal takeover.

There are certainly times when an inside hire is still the best option for filling the shoes of an outgoing CEO—context for every situation is key when choosing the right person for the job. But before discounting an outsider, consider if they might bring the perfect mix of experience, enthusiasm, and innovation that might be just what your company needs.

About Ryan Moore
Moore has two decades of experience in sales and executive talent acquisition. Currently, he serves as the Director of Client Management at Peak Sales Recruiting, North America's leading sales recruitment firm. He plays a key role in the organization’s success and has helped world-class companies like Gartner, P&G, Pioneer, and SevOne build their sales teams.
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